Order Flow Trading: CVD, Delta, Absorption and Market Depth

Aggressors, passives and where delta comes from

Every trade has two sides, but only one of them chose to cross the spread. The trade that lifts the offer is a buy aggressor; the trade that hits the bid is a sell aggressor. The other side was sitting there passively, waiting.

Delta is the running difference: aggressive buy volume minus aggressive sell volume. Positive delta means buyers are paying up to get filled. Negative delta means sellers are hitting bids to get out. Delta is the closest thing intraday trading has to a measure of urgency.

Cumulative Volume Delta, or CVD, is delta summed across the session. It is the running scoreboard of who has been more willing to pay for immediacy — and it is far more informative than raw volume, which counts both sides identically and therefore tells you nothing about direction.

The four order-flow reads that matter

Divergence is the highest-value pattern order flow produces. When price grinds to a new high while CVD refuses to follow, someone large is selling passively into every buy — supplying the market without ever showing urgency. That is precisely what distribution looks like from the tape, and it is invisible on a candle chart.

Absorption: the tell at a level

Absorption is heavy aggressive volume arriving at a price level with almost no resulting price movement. A thousand lots of aggressive selling hits the bid and price drops two ticks. Somebody is sitting there taking every single contract.

That is real information. Passive size at a level is a participant with a defined view and the balance sheet to defend it — the opposite of the momentum crowd. Absorption at support, followed by delta turning positive, is one of the cleanest reversal sequences available intraday.

The failure mode is symmetric and equally useful: when heavy aggressive volume arrives and price does move freely, there was no size defending the level, and the break is likely to run.

Reading market depth (L5 and beyond)

Depth shows resting limit orders at each price level — the queue on both sides of the book. Indian exchanges disseminate five levels on each side for most contracts, which is enough to read imbalance even if it is not the full book.

The useful measure is the ratio of resting bid size to resting ask size within the visible band. A persistent 3-to-1 bid imbalance that holds while price consolidates is meaningfully bullish. A one-second spike in the same ratio is noise.

Two cautions. First, resting orders can be pulled instantly, so depth is an intention, not a commitment — spoofing is real. Second, index spot feeds carry no depth at all; read depth from the futures contract, never from the index level itself.

• Persistence beats magnitude — a sustained 2:1 imbalance outranks a momentary 8:1 spike.
• Watch depth vanish as price approaches a level; that withdrawal often precedes the break.
• Compare depth imbalance to delta. Agreement is a signal; conflict usually means hedging flow.
• Read depth from futures. Index feeds have no bid, ask or volume.

Large aggressors and stop hunts

Isolating unusually large single aggressive prints separates institutional participation from the retail hum. A cluster of large buy aggressors at the top of a range is the market announcing intent; the same cluster with price failing to advance is the market announcing that intent has been met with size.

Stop hunts are a specific and recognisable order-flow shape. Price pushes just beyond an obvious level — the previous day high, the opening range extreme, a round number — a burst of aggressive volume fires as resting stops trigger, and then price snaps straight back inside the range with delta reversing. The signature is a volume spike and a delta spike that both fail to produce follow-through.

Combining order flow with positioning data

Order flow is fast and precise but has no memory. Open Interest and GEX are slow and structural but say nothing about the current second. Used together they answer different halves of the same question: positioning tells you where the market cares, order flow tells you what is happening there right now.

The workflow that works is sequential, not simultaneous. Name the level first from price structure and positioning — an OI wall, the gamma flip, VWAP, the previous day high. Then wait for order flow to confirm at that level, through absorption, a delta flip, or a depth imbalance that holds. Order flow used without a level is noise; a level used without order flow is a guess.